HSA

Health Savings Accounts (HSAs) were signed into law on December 8, 2003. HSAs are a significant expansion of the current Medical Savings Accounts MSAs.

What is a Health Savings Account?

An HSA works like an IRA, except that money is used to pay health care costs. Participants enroll in a relatively inexpensive high deductible insurance plan. Then, a tax-deductible savings account may be opened to cover current and future medical expenses. The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year.

Who can qualify?

Everyone under age 65 (not just self-employed or small businesses) with a qualified high deductible insurance plan will be eligible for a tax-deductible HSA.

How does an HSA Work?

You obtain coverage under a qualified high-deductible health insurance plan. Each year you deposit the money you saved on lower premiums into a tax-favored savings account. You use the savings account to pay for your deductible with tax-free dollars. Once you meet the deductible, the insurance starts paying for your medical expenses. Any money left over at the end of the year is yours to keep. You can also pay for other eligible medical expenses that your insurance policy may not cover. Please visit www.irs.gov for publication 502 which lists eligible medical expenses.

What are the new maximum contribution limits?

2010 Guidelines for Health Savings Accounts

As Issued By the Treasury Department and the IRS

The Treasury Department and IRS issued new guidance on the maximum contribution levels for Health Savings Accounts (HSAs) and out-of-pocket spending limits for High Deductible Health Plans (HDHPs) that must be used in conjunction with HSAs. These amounts have been indexed for cost-of-living adjustments for 2010.

2010 HSA Individual High Deductible Health Plan (HDHP) Requirements

Individual Coverage

Family Coverage

Minimum Deductible

$1,200

$2,400

Maximum Out-Of-Pocket Expense1

$5,950

$11,900

Maximum Contribution Limit2

$3,050

$6,150

Catch-Up Contribution (Age 55 or older)2

$1,000

$1,000 for each HSA account holder

1 Includes deductibles, copayments, etc., but not premiums.

2 After an individual becomes enrolled in Medicare benefits, contributions, including catch-up contributions, cannot be made to the individual’s HSA account.